5 Talking Points after RBA Raises Interest Rates as Inflation Hits 30-year High
A little less than perhaps some expected, but a rise nonetheless was the result of the Cup Day meeting of the board of the Reserve Bank of Australia.?2.85%, up 0.25% is short and short of it.
One who predicted correctly was Commonwealth Bank’s head of Australian economics Gareth Aird, who stated in comments published pre-decision in https://www.theage.com.au/ that “the very recent borrowers are the ones who have not been able to build up buffers. They’re the most vulnerable cohort and the one who bought property at its highest prices.?
1.??Inflation may be peaking
Speaking on the Money News with Luke Grant podcast right after Tuesday’s rates decisions, AMP Capital economist Shane Oliver said he believed inflation to be topping out, but noted the delayed impact of previous rates decisions, which typically take a month or so to filter through to mortgages, and then for borrowers to notice the effect and adjust their spending habits.?
We are close to the top. The Reserve bank sensibly stuck to .25% increment, rather than raising rates by 50 basis points, which reflects their concerns that growth is going to slow down... and that monetary policy affects the economy with a lag"
- Shane Oliver, Chie Economist, AMP Capital
2.??Wage growth not to catch up to COL until 2024
Despite the uptick in wage growth, the RBA is not expecting wage growth to catch up to the recent cost-of-living rise until 2024. What concerns the bank, is workers making greater wage claims to cover their own household budgetary tightening, a condition called a “price-wage spiral”.
3.??Housing loan commitments have dropped dramatically
Typically used as a leading indicator for house prices, housing loan commitments have dropped dramatically recently.?This does not bode well for developers in the residential market.?
4.??Business Investment is at its lowest since the “recession we had to have”
If the economy is flying, and this really is a demand-led boom causing inflation, why is a business investment at lows not seen since the recession of the early 1990’s and is trending down post-Covid?
5.??Capacity utilization is at 30-year highs – where are all the workers?
The alternative theory to “demand-led” inflation as the RBA rosily paints the picture is that it is in fact “supply-chain” issues, locally and internationally, that are causing the inflationary pressures. The NAB Business Survey shows that Capacity Utilization reaching levels not seen in 30 years. Strict border controls and the exodus of both skilled workers and international students have had a ripple effect throughout almost every industry.
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